Sunday, May 26, 2013

The good one is the Reinhart and Rogoff response. I think the Herndon, Ash, and Pollin paper was an important contribution to the discussion but I think the criticism of R&R needs to focus on (1.) empirical assumptions they made, (2.) the disproportional focus on the 90% figure that was not the watershed it was purported to be, and (3.) the monotone public discussion of the direction of causality (which has not matched their writing on the subject). These are three valid areas of criticism of R&R, the last one especially. Krugman's gone substantially beyond these criticisms (although he's regularly pointed out how good Rogoff's work is). The worst is when Krugman treats them like eager accomplices of politicians that support austerity, like they've been hiding data, or that the debate has turned on their paper. The last one may only be rhetorical flourish (it's pretty absurd), but it's still unfair to R&R. Reinhart and Rogoff have addressed each of these in their letter.

It does get goofy in parts, though. Take this:

"Your recent April 29, 2013 NY Times blog The Italian Miracle is meant to highlight how in high-debt Italy, interest rates have come down since the European Central Bank’s well-placed efforts to act more as a lender of last resort to periphery countries. No disagreement there. However, this positive development is meant to re-enforce your strongly held view that high debt is not a problem (even for Italy) and that causality runs exclusively from slow growth to debt... Indeed, your repeatedly-expressed view that slow growth causes high debt but not visa-versa, is hardly supported by the recent literature on the subject... Of course, it is well known that the economic cycle impacts government finances and therefore debt (causation from growth to debt). Cyclically adjusted budgets have been around for decades, your shallow characterization of the growth-debt connection." [emphasis is mine]

It's stuff like this that makes it hard for an objective reader to take them seriously. This obviously has nothing at all to do with Krugman's position - he's never said causality runs exclusively from slow growth to debt. He's gone out of his way to present the alternative. This is common across people that go nuts over Krugman - straw-manning comes with the territory in blogs, but Krugman gets more straw-manning than almost any other economist on the internet right now.

The bad criticism is from Scott Sumner and really isn't worth saying much about. He gets worked up that there are things Krugman doesn't like about conservative narratives and concludes that Krugman thinks that it describes all conservatives to a tee (when he actually names alternatives in the post and complains about conservatives disowning them!). Anyway, I really don't want to draw more attention to Scott Sumner. I'm not even sure his blog is going to survive my transition out of Google Reader. But I did want to highlight the post for these two responses from Aidan (who comments here too sometimes):

"I actually have no idea what issue you have with Krugman’s piece, as you seem to agree with the individual points he raises in a way that today’s Republican Party does not. Are you confusing right-leaning economists with the right in general?
Yes, some conservative intellectuals believe in anthropomorphic climate, expansionary monetary policy in a recession, etc., but they are so noteworthy that there are features written about the fact that they exist.
Are there any prominent conservative politicians that hold these views? Any influential members of the conservative movement?"

"I think it’d be a much better use of your time if you spent half the energy you spend bickering with Keynesians who are roughly in full agreement about our current monetary policy needs on trying to convince prominent conservative politicians and thinkers that their views on inflation and monetary easing are dangerous and wrong.
Krugman wrote that spending too much time focusing on his differences with MMT is a waste of time because those disagreements aren’t particularly important right now. I think it’s similarly more important that you spend more time focusing on the people who are loudly and actively opposed to monetary easing. I’ll give you a hint: they aren’t the Keynesians!"

Why is there so little high quality critiques of Krugman out there and so much crap? Maybe the question answers itself. Actually the best place for high quality Krugman criticism is Bob Murphy, but this may just be the law of large numbers (if you figure 95% of his criticism misses the mark given the volume of it of course you're going to get some really piercing critiques every couple of weeks). Krugmania is one of the weirdest things in the economics blogosphere, IMO. I don't know why people don't just say "well he gets a little liberal and a little shrill for me sometimes and I don't like that" and leave it at that. Instead they put out some really nutty criticisms.

Tangentially related question.... Keynesians believe that the balanced-budget multiplier is 1. So, you could side-step this who budget debate if you wanted to. Instead of advocating deficit spending you could advocate a large increase in government spending along with a corresponding large increase in taxes. Perhaps that wouldn't be any more popular with the electorate than deficit spending, but why isn't someone proposing it?

Actually, I have to disagree with your comment on where Reinhart's letter gets "goofy." Krugman, recently, has been pounding that causality runs from low growth to high debt. It might be because he thinks this is the causality that matters right now, and he doesn't want to muddle his (pro stimulus) message by being "too" objective. But, at least since the R&R debate began, he has not claimed that causality can also run in reverse.

Daniel - thanks! I think at some point Sumner's continued misrepresentation of Krugman, Delong, Thoma, etc. on monetary policy jumps from being a simple misreading to being actively deceitful. I think he's still worth reading, but I'm pretty tired of repeating myself.

I had the exact same reaction to that line in the Reinhart response. Krugman has said that:

"What I think I’m seeing, although I haven’t tested this carefully, is that the causal relationship largely runs from growth to debt rather than the other way around. That is, it’s not so much that bad things happen to growth when debt is high, it’s that bad things happen to debt when growth is low...I’m not denying that high debt can be a problem; but I think we need to be careful in assessing simple correlations."

I'm not going to excerpt everything he's written on the subject, but he also addressed it here.

So, the point is not that high debt -> low growth cannot happen, it's that the individual examples of high debt and low growth strongly indicate a different causality. Arin Dube made the same point:

"In their response, RR state that they were careful to distinguish between association and causality in their original research. Of course, we would only really care about this association if it likely reflects causality flowing from debt to growth (i.e. higher debt leading to lower growth, the lesson many take from RR's paper).

While it is difficult to ascertain causality from plots like this, we can leverage the time pattern of changes to gain some insight. Here is a simple question: does a high debt-to-GDP ratio better predict future growth rates, or past ones? If the former is true, it would be consistent with the argument that higher debt levels cause growth to fall. On the other hand, if higher debt 'predicts' past growth, that is a signature of reverse causality."

If Reinhart and Rogoff were subject to a competent cross examination the Judge would almost certainly conclude that they had cherry picked and massaged their data and then, in subsequent publications, misrepresented their results.

(1) Does anyone deny that Krugman (in his NY Review of Books piece) accused R&R of not sharing their data until the intrepid young grad student pried it out of their cold hands?

(2) R&R claim that they made their data available years ago. Are they lying about that?

(3) If not, then can you guys understand why some scholars might get a tad upset about accusations of academic dishonesty that are false? Krugman isn't just saying they're wrong, he's saying their dishonest. Unless you say they were lying in their rebuttal, then you should stop being baffled about why Krugman makes people flip out.

Rogoff and Reinhart are lying about the data issue. Or rather, they are intentionally being misleading while staying just barely inside the line of literal truth. http://www.businessinsider.com/thomas-herndon-on-reinhart-and-rogoffs-data-availability-2013-5

"Herndon, a 28-year-old graduate student, tried to replicate the Reinhart-Rogoff results as part of a class excercise and couldn’t do it. He asked R&R to send their data spreadsheet, which had never been made public. This allowed him to see how the data was put together, and Herndon could not believe what he found."http://www.salon.com/2013/04/21/meet_the_economics_whiz_who_outed_rr_partner/

It has always been clear that what R&R refused to release was the spreadsheet, and that they first made it available to Herndon after he pestered them for it repeatedly.

In their response to Krugman, Rogoff and Reinhart do not claim that they provided their spreadsheet. They merely say that they indicated the publicly available data that they referenced. Big deal. No one is saying that they falsified data - that would be a ridiculous claim. But you couldn't replicate or evaluate their work without "their data," that is, the data they chose to use for their calculations, and that information was not available without the spreadsheet - which they refused to release.

Well, it looks like I was too easy on Rogoff and Reinhart my last comment: http://qz.com/88781/after-crunching-reinhart-and-rogoffs-data-weve-concluded-that-high-debt-does-not-cause-low-growth/

Yichuan Wang and Miles Kimball, who previously relied on R-R to argue against Krugman's (vindicated) dismissal of the debt threshold idea:

"Here is the bottom line. Based on economic theory, it would be surprising indeed if high levels of national debt didn’t have at least some slow, corrosive negative effect on economic growth. And we still worry about the effects of debt. But the two of us could not find even a shred of evidence in the Reinhart and Rogoff data for a negative effect of government debt on growth."

Posted by: Anonymous jones at May 26, 2013 09:20 AMJust to flesh out a bit more the critique of R&R's claims, here is a comment posted by Anonymous jones to Jim Hamilton's R&R apologia/anti-Krunman screed.

http://www.econbrowser.com/archives/2013/05/reinhart_and_ro.html

"I'm sorry, but this just doesn't cut it. I don't understand their claim that "The Herndon, Ash and Pollin paper, using a different methodology, reinforces our core result that high levels of debt are associated with lower growth." The HAP paper primarily concentrated on the post-war results, not the 200 year result in their 2012 paper. Does anyone really care about or take seriously debt/GDP numbers from George Washington's first term? So America in 1791 was an "advanced" economy??? Looking out over 200 years is especially strange given that one of the HAP findings was that the relationship between high debt and low growth seemed to be degrading over time.Reinhart claims that debt events over 90% are rare. Well, I don't call 10% of the time "rare." But notice that with this sleight of hand she has implicitly used exactly the same weighting methodology as HAP.Reinhart also discusses a quote from Sen. Coburn's book. Except that the quote she cites is not the one that captured everyone's attention. And it doesn't address the charge that in open testimony she did not make any effort to correct a couple of congress critters who attempted to resummarize her testimony.She also misrepresents Krugman's position regarding fiscal expansion in Europe's periphery. His position is that fiscal stimulus is not a viable option there, which is why he has called for Germany to accept higher inflation. Reinhart's claim that this won't work because the ECB may very well try to contain any emerging German inflation may well be true...but there is no reason the ECB must behave stupidly.Krugman did not say that R&R didn't make their data available; he said that they did not make it widely available. One should not have to go to an obscure and unobvious place such as a personal website within a tab listing a professor's course offerings. What's wrong with a simple "Data" tab? That's what most academics do. And in the footnotes of their paper they should have cited a website for their data instead of misleading readers into thinking it came directly from the cited data sources. And of course, the data were not available at the time their paper was making its biggest splash. But the biggest complaint coming from scholars wasn't access to the data, but the difference between how they actually weighted the data and the way the weighting was described in their paper.The quote from the Fareed Zakaria interview is shockingly dishonest and out of context. In fact, I linked to that very same interview showing the full context. Yes, Rogoff did say he would support infrastructure spending...but why didn't she include Rogoff's subsequent comment where he completely reverses himself? As they like to say...roll the tape!Finally, Reinhart continues to perpetuate the strawman argument that critics claim higher debt/GDP ratios are something we don't have to worry about. No one is saying that. The slam against R&R is that they presented and encouraged and reified (there's a good Marxist word) the 90% "threshold" as a sharp break point. As R&R concede in a footnote in a paper behind a paywall, the 90% threshold was just an artifact of the way IMF organized data. So why not just come out and say the 90% number isn't a firm threshold? And then when they do admit that, don't try and walk it back. And for God's sake, please have the courage to try and correct Rep. Paul Ryan with as much vigor as they seem to feel towards correcting Paul Krugman."